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In the presence of a layer of metaprobabilities (from metadistribution of the parameters), the asymptotic tail exponent corresponds to the lowest possible tail exponent regardless of its probability. The problem explains “Black Swan” problems, i.e., why measurements tend to chronically underestimate tail effects, rather than merely deliver imprecise but unbiased estimates.

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A spurious tail is the performance of a certain number of operators that is entirely caused by luck, what is called the “lucky fool” in Taleb (2001). Because of winner-take-all-effects (from globalization), spurious performance increases with time and explodes under fat tails in alarming proportions. An operator starting today, no matter his skill level, and ability to predict prices, will be outcompeted by the spurious tail. This paper shows the effect of powerlaw distributions on such spurious tail.